On Our Radar

On Our Radar

Corvex Builds Stake in CenturyLink

Activist Keith Meister is wading back into telecommunications companies with a big purchase of CenturyLink Inc. as it buys Level 3 Communications Inc., whose management team he has long praised.

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Mr. Meister's Corvex Management LP owns about 5.5% of CenturyLink, he disclosed at the Ira Sohn conference in New York on Monday, and wants to see Level 3 Chief Executive Jeff Storey eventually become the chief executive of the combined company. Currently, the companies plan for CenturyLink leader Glen Post to become CEO and for Mr. Storey to be a nonexecutive director.

"Execution has been substantially weaker at CenturyLink than at Level 3 for many years," Mr. Meister said at the conference. ""Would you pay a premium to buy the New England Patriots and then not start Tom Brady?"

CenturyLink wasn't immediately available for comment.

In a presentation, the activist praised the rationale for the deal, which gives CenturyLink greater exposure to business customers and the scale to boost its free-cash flow. CenturyLink gets about two-thirds of its revenue from business customers, while Level 3's comes entirely from that segment.

At the same investor conference four years ago, Mr. Meister said he was betting on Level 3 and Mr. Storey as an underappreciated story in a business that's been shaken up by wireless growth and a history of consolidation. After that presentation, Level 3 combined with TW Telecom Inc. and then last October agreed to the $25 billion sale to CenturyLink.

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Mr. Meister wants to see Mr. Storey get an executive role that would lead to him being named CEO in a year. He called for both executives to be present for the coming few years, but for the older Mr. Post to gradually cede his roles to Mr. Storey. Mr. Meister compared Mr. Storey's strong stock returns to the comparatively weak performance of Mr. Post's CenturyLink.

The so-called wireline business of running telephone and internet lines has suffered from brutal competition over the past 15 years, hurt by plummeting prices for network bandwidth and high capital costs. Both companies have been voracious acquirers on their own right and part of Mr. Meister's pitch was that with better management, the combined company could cut more costs and boost the company's cash flow higher to fuel more deals.